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D - The lender must delay the sale of the
D - Lenders can, and do, commonly set down a Q7 - Correct answer: B
property until the sale price covers
minimum amount that can be accepted as a A - An early repayment charge could, not will,
partial repayment. be charged depending on the terms of the
Joanne's original loan.
Q3 - Correct answer: B original mortgage contract.
A - Repayment of credit card debts is likely to B - The low-cost endowment will have built-in
9. Andy's mortgage account has recently gone
be positive for her personal credit rating as life cover and usually a guarantee that the
into arrears. His first missed payment was long as she maintains mortgage payments. mortgage will be repaid on death. If the
on Monday 1 July. His lender became aware
B - Whilst credit card interest is high, the policy is surrendered this life cover will be
of the missed payment on Wednesday 3 July.
mortgage will last much longer, probably cancelled and need to be replaced.
When is the latest date that the lender must
meaning that, overall, more interest will be C - The terms of the new replacement are sub-
write to warn Andy of the situation?
paid. ject to agreement between lender and bor-
A - Monday 8 July.
C - There is no reason for the lender to impose rower. There is no necessity to extend the
punitive interest rates on debt consolida- term.
B - Wednesday 10 July.
tion. D - The main advantage of a repayment mort-
C - Monday 15 July.
D - A remortgage would not be regulated under gage is that provided payments are made
D - Wednesday 24 July.
the Consumer Credit legislation, it would when due, the scheduled last payment will
fall under the FSMA 2000. repay the last element of outstanding capi-
10. The Mortgage Conduct of Business Rules
Q4 - Correct answer: A tal.
require a lender to make a record of its
A - As the second debt has increased the mort- Q8 - Correct answer: C
dealings with a borrower whose regulated
gage this will increase payments and there- A - Joanne will only be entitled to any surplus
mortgage contract is in arrears. For how
by potentially increase the chance of the over the forced sale price after all other
long must this record be retained?
borrower defaulting and repossession costs, expenses, other secured loans and
occurring. arrears have been cleared.
A - One year from the date on which the
B - The borrowing risk arguably increases B - Once the possession order is granted
arrears were cleared.
because the chances of defaulting exist with repayment of arrears is not legally suffi-
B - One year from the date the account
subsequent repossession a possibility. cient. All the mortgage account must be
first fell into arrears. C - The interest rate effectively reflects the cleared.
C - Five years from the date an initial
lender's risk. Borrowing to consolidate, in C - Even after the date that possession has
arrangement to clear the arrears was
itself, is not a particular risk and will not been granted to the lender the borrower
made.
necessarily result in a higher rate. The can still return to the lender to settle the
D - Five years from the date on which the
lender however will not lend if the risk is mortgage account right up until the dispos-
arrears were cleared.
disproportionate. al of the property.
D - A higher lending charge is a function of the D - The lender has no obligation to cover
loan-to-value percentage. Debt consolida- Joanne's loan from the sale but is obliged
ANSWERS & JUSTIFICATIONS
tion will increase the amount to be bor- to seek the best price.
rowed which could therefore lead to such a Q9 - Correct answer: D
charge being required. A - Under MCOB rules (Chapter 13.7) the lender
Q1 - Correct answer: C Q5 - Correct answer: A must write to the borrower within 15 busi-
A - A 'clog on the equity of redemption' is a A - Consolidating debts into a mortgage ness days of becoming aware that the
legal term used by a court if it considers increases the capital outstanding within the account is in arrears.
that a condition has been imposed by the mortgage. If house prices should fall, a B - Under MCOB rules (Chapter 13.7) the
lender to prevent the borrower from paying negative equity situation can be triggered lender must write to the borrower within 15
back a loan. This can often relate to more quickly if the loan-to-value ratio has business days of becoming aware that the
redemption penalties. been increased. account is in arrears.
B - A 'clog on the equity of redemption' is a B - Because unsecured debts are by their C - Under MCOB rules (Chapter 13.7) the lender
legal term used by a court if it considers nature riskier to the lender than secured must write to the borrower within 15 busi-
that a condition has been imposed by the debts, they will carry a higher interest rate. ness days of becoming aware that the
lender to prevent the borrower from paying C - Neither unsecured debts nor repayment account is in arrears.
back a loan. This can often relate to mortgages are linked to repayment by use D - Under MCOB rules (Chapter 13.7) the
redemption penalties. of an investment vehicle. lender must write to the borrower within 15
C - A 'clog on the equity of redemption' is a D - Consolidating unsecured debts within a business days of becoming aware that the
legal term used by a court if it considers second mortgage can increase the risk of account is in arrears.
that a condition has been imposed by the subsequent default if payments are Q10 - Correct answer: A
lender to prevent the borrower from paying increased and cannot be met. Default can A - Under MCOB 13 the lender must keep
back a loan. This can often relate to lead to repossession. records of its dealings with borrowers who
redemption penalties. Q6 - Correct answer: A are in arrears or have a shortfall debt. The
D - A 'clog on the equity of redemption' is a A - A cash back can release funds to repay record must be kept for one year from when
legal term used by a court if it considers some of the debt and as cashbacks do not the borrower cleared the debt or arrears.
that a condition has been imposed by the increase the mortgage debt they are clearly B - Under MCOB 13 the lender must keep
lender to prevent the borrower from paying a very useful tool in these circumstances. records of its dealings with borrowers who
back a loan. This can often relate to B - A variable interest rate can leave individu- are in arrears or have a shortfall debt. The
redemption penalties. als exposed to the impact of rising interest record must be kept for one year from when
Q2 - Correct answer: D rates. the borrower cleared the debt or arrears.
A - Where a partial repayment represents part C - An interest only mortgage will require a C - Under MCOB 13 the lender must keep
of a special deal mortgage, a proportional supporting investment vehicle. The total records of its dealings with borrowers who
penalty may apply. monthly payments will be higher than a are in arrears or have a shortfall debt. The
B - On a partial repayment, the monthly pay- repayment mortgage and there will be record must be kept for one year from when
ment can be maintained, with the mortgage uncertainties as to whether the investment the borrower cleared the debt or arrears.
term shortened. vehicle will repay the loan. D - Under MCOB 13 the lender must keep
C - On a partial repayment, the monthly D - The longer the term the greater the amount records of its dealings with borrowers who
payment can be reduced, with the of interest will be paid to service the loan. are in arrears or have a shortfall debt. The
mortgage ending on the original contract Other methods of minimising expenditure record must be kept for one year from when
date. should be considered first. the borrower cleared the debt or arrears.
www.mortgageintroducer.com February 2009 Mortgage Introducer
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